The term co-op is short for “cooperative”. As the name suggests, a cooperative housing establishment allows multiple people to live within the property, similar to a condo building. However, unlike a condo, residents of a co-op do not actually own the housing units they live in. Instead, they own shares of a corporation and the corporation owns the building and all the units within it.
When “buying” a co-op, you are actually buying the shares of the corporation, making you a stockholder. Your stockholder status gives you the right to live in the co-op, but you do not actually own the property. When/if you decide to sell, you will be selling your shares and the right to live in the property — not the property itself.
Just like living in a townhouse or condo community, living in a co-op allows the resident to enjoy the benefits of home ownership without the high-maintenance upkeep requirements. Furthermore, co-op residents can usually be considered homeowners for tax purposes, allowing them to deduct their share of the real estate taxes and mortgage interest paid by the cooperative.
- No personal liability on the co-op mortgage. The cooperative association is responsible for paying off any mortgage loans. This can often make it possible for persons whose income might not qualify them for an individual mortgage to buy a membership in a limited equity co-op.
- Equity. Co-ops can provide for accumulation of individual member equity. For market-rate co-ops, the accumulation of equity and resale prices is based on the market. Limited-equity co-ops establish limitations on the accumulation of equity to assure long-term affordability to new members.
- Elimination of Outside Landlord. Co-ops offer control of one’s living environment and a security of tenure not available in rental housing.The information contained herein does not constitute tax advice. Please consult a tax advisor regarding the deductibility of taxes and interest.